World Energy Outlook 2007: China and India Insights

Chief Economist and Head of the Economic Analysis Division, International Energy Agency

Presiders

David G. Victor

Adjunct Senior Fellow for Science and Technology, Council on Foreign Relations; Director, Program on Energy and Sustainable Development, Stanford University; Profressor, Stanford Law School

DAVID VICTOR: Please, let me interrupt. Thank you very much.

I will remember not to bring up a plastic pen next time. Thank you, Rod, for clinking your glass.

It's really my great pleasure to open this meeting to discuss the world energy outlook. Let me just, before we begin, remind everybody to turn off your BlackBerrys, your fax machines, your satellite phones. The markets will be open at 2:00 when we finish. This meeting is on-the-record -- just as a reminder -- and we have some press here with us as well.

My name is David Victor. I'm an adjunct senior fellow here at the Council; I work on climate change and energy markets. I'm also a professor at Stanford Law School, where I teach regulation and work on similar issues.

It's my great pleasure to introduce Fatih Birol. You have Fatih's biography with the materials that were distributed before this meeting, so I won't go through his biography in detail except to say that he is the chief economist at the International Energy Agency, and I believe in that role, over many years, has now emerged as the single-most articulate spokesman about what is going on in the energy markets. And their flagship publication, which is produced in Fatih's shop, "The World Energy Outlook" has now become really a definitive document. And every year they work on a different topic. This year they're focusing on China and India.

And without further delay, let me introduce Fatih, who's going to give you a slideshow -- not the norm here in the Council -- but facts and numbers matter, and so Fatih's going to show us some facts and numbers. He's going to talk for 10 or 15 minutes and then we're going to have a Q&A up here and then we'll open it up for more general discussions.

Fatih. (Applause.)

FATIH BIROL: Good afternoon, ladies and gentlemen and bon appetite to all of you.

Thank you very much, David, for the kind introduction. I am sorry that I am going to use some slides, and there are two reasons: I am a man of numbers, so without numbers, I cannot say much; second, English is not my mother tongue, so it helps me a lot when the attention is there rather than on me. So sorry for using slides -- and I wanted to bring some facts to your attention, which I believe some of them are stunning. Looking at the Chinese and Indian growth in terms of energy demands implications for the CO2 emissions, as you will see in a minute, I believe they are stunning.

More generally, ladies and gentlemen, I believe that we are on the eve of a new world energy order. On the supply side there is a major transformation that we see very little chances -- oil and gas supply growth coming from very -- outside of a very few number of countries. When we look at the future, we see five or six countries which can be responsible for the growth on oil and gas production: Saudi Arabia, Iran, Iraq, Kuwait, UAE and Russia. There's one or two others, but these will be the main drivers of the oil and gas supply growth, which is very different than what we used to see in the past. And these countries' industry, oil and gas industry, is very different from what we saw in the past -- mainly driven by the national oil companies -- and most of these countries are in a region where it is particularly rather unstable.

Such a transformation is taking place on the supply side; and on the demand side, we see that the -- China and India are transforming our energy markets by their sheer size. I'm going to give you some numbers about our projections for the future, but if you don't believe our projections, which is completely legitimate -- (scattered laughter) -- you will see that in the last two years about 70 percent of the growth in global oil demand came from China plus India. About 80 percent on the global coal demand came from these two countries and many other surprises to come, we believe. So therefore, we made this book, as David said, on China and India. The book is not done just sitting in Paris in our comfortable -- rather comfortable headquarters -- and looking at the Internet and cut-and-paste type of work, but we did this study together with the Chinese and Indian government. The book was peer reviewed by about 150 experts throughout the world. And Mr. Chairman, David, is one of them. But we had 50 peer reviewers from China and India looking at our book.

There are many uncertainties today in the energy markets, as we all know -- as I'm sure most of you know much better than me on a daily life. And therefore, we have developed three scenarios that I'm going to go through very quickly with you. The first one is a reference scenario, which means how the global energy markets would look like in the next 25 years -- throughout the next 25 years -- if the current policies of the governments do not change. And as you will see here, we see a twin threat coming from this no-policy change picture: namely, increasing risks in the oil and gas security; and the second, increasing risk on the climate change front. And therefore, we know that many governments in the world -- OECD governments, Chinese and Indian governments -- are considering new policies to put in place in order to address both of these challenges and in some cases, one of them. For some governments, energy security is more important; for the others, environment. So what kind of policies -- more renewables, more efficiency and more nuclear power to address those challenges, but policies which are not yet implemented. So we look at them in our alternative scenario: What happens if those policies we have identified -- 1,500 policies on a country-by-country basis on this three major policy pillar -- more efficiency, more renewables and more nuclear -- what happens if those policies to be introduced?

Third, and the last scenario that I'm going to touch upon, is about the big uncertainty. The book is about 700 pages. If you have a chance, you may want to have a look at it. There are many numbers, assumptions and so on. If you ask me, what is the most critical number assumption, I would tell you it is the pace and the nature of the Chinese economic growth. So it's not only for our book, but for the oil markets, for climate change. It is very important how much China will grow and what kind of growth prospect they are going to follow. We all know that many international institutions have underestimated the Chinese growth in the last four or five years. And we said, if the Chinese growth was higher -- economic growth -- than we assume in our reference scenario, what happens? As usual, we made the projections for all the countries and all the regions and all the fields. And plus, one unique aspect of this book is not only analyzing China and India in depth -- their energy sector and environmental issues -- it has never been done before, but more importantly, to look at the implications of these developments on the global markets in terms of oil markets, CO2 emissions, investments and so on. Let me start with the reference scenario if no changes happen.

If no changes happen, we expect a fossil fuel future. So our energy mix will be dominated by oil, gas and coal. Perhaps a small note about coal here: We talk in many OECD countries we talk a lot on the wind, biofuels, PV, photobiotics and others. However, when you look at the numbers, last two years, it is coal which makes gigantic steps in terms of fuel mix growth. And in the future, we expect coal, with the current policies in place, will be the fuel which makes the biggest contribution to the global energy mix growth. Of course, the others are growing as well, but I just wanted to make a point on coal.

Role of China and India: China, according to our projections, will overtake the United States around 2010 as the largest energy consumer of the world. And just to put things in context, only in 2005 -- two years ago -- the U.S. was using 25 percent more energy than China. In around 2010, China will be overtaking the United States. And about 45 percent of the growth in the global energy demand will come from China, plus India. More than 80 percent of the growth from coal will come from these two countries.

In terms of investments, every 12th dollar which will go to the electricity sector in the world will go to China and India electricity sectors; so two countries, again, transforming the global energy markets on the demand side in a rather strong manner, and we feel their pressure day by day.

A word on the oil markets. Everybody is interested in the oil markets. We are known, as we are an intergovernmental organization, as a conservative institution. Rightly or wrongly, we have this stamp. I think that our numbers which we came out with is a bit of a surprise to many people that we think that the oil markets will remain tight in the next years to come. And to say that doesn't need a rocket scientist.

A couple of very important numbers. We expect, between now and 2015, there is a need for -- 37.5 million barrels per day of oil need to come to the markets -- 37.5; some of them, 13.6 million barrels per day, for the growth, to meet the growth in the demand, mainly driven by China and India, and the rest, which we sometimes forget, is to replace the fields which are declining, going to decline in the next years to come. So we need 37.5 million barrels per day new capacity to come to the markets.

And when we look at all the projects which are financially sanctioned, 230 projects, on a project-by-project basis, in OPEC and non-OPEC countries, they will add about 25 million barrels per day. So the difference is about 12.5 million barrels per day around 2015.

Can this gap be met? Theoretically, yes. But we need two things -- either more oil -- not more rhetoric -- more oil from the key producers, and slowing down the oil demand growth from key consuming countries. So if we have these both together, we can meet the gap. Otherwise we think a supply crunch in the next years to come cannot be ruled out, perhaps with the implication of escalation of oil prices.

When we talk about oil, let me tell you something about the big oil, what we see. Normally, when you look at the history of oil production, when the prices go up as it did in the last couple of years, the reserve replacement ratio of the key oil companies -- we look at the top five -- has to increase. But when we look at the numbers, we see rather a poor picture.

The reserve replacement ratio of the top five international oil companies are declining. This is mainly as a result of fields they are owning are in a decline trend; and second, they do not have access to major reserves, mainly in Middle East and elsewhere, as the investment to foreigners -- (inaudible) -- investment is closed and banned in those countries, and the national oil companies are in charge of developing the fields and having access to reserves.

So this is part of the new game that the decisions will be made by the national oil companies, and I think the IOCs are in an identity crisis now. They have to define their medium-term and longer-term strategies, what they are now going to do.

Going to the demand side, as I said, the major driver of the demand will be China and India; in fact, mainly China. According to our numbers, China will import about 10 million barrels per day of oil around 2015, and 13 million barrels per day of oil in 2030, similar to the United States. China, in terms of oil imports, will be United States tomorrow.

But even more perhaps strong finding is of the car ownerships. In 2006, the car sales in China overtook Japan. In 2015, they are going to overtake United States. However, the key story here is today in China, 20 persons out of 1,000 persons own a car. And in 2013, when they reach 13 million barrels per day, there will be 140 persons out of 1,000 persons own a car. And this compares with the United States today, that 850 persons out of 1,000 persons own a car.

So it would be very wrong and unfair, economically, ethically, to blame China for the troubles we are going to have in the oil markets, because in terms of vehicle ownership they are only a small portion of what we have in the U.S. or in Europe or elsewhere.

And another point here is that these numbers, the per capita car ownership numbers, are a function of the economic growth. And here in the beginning, as I said, these are all medium-level economic growth numbers. If the economic growth is much higher than our assumptions, the per capita ownership levels may be much higher, and therefore implications for oil demand may be much more stronger.

This is one part of the twin track, the oil security, oil markets. I would like to show you another aspect which we take very seriously, the carbon dioxide emissions problem. When you look at the CO2 emissions issue, we didn't want to look at it again from the eyes from Paris. We want to have empathy for China and India and look at their arguments.

One of the arguments that they have is that "You have" -- rich countries -- "throughout 100 years, during the Industrial Revolution, you put a lot of CO2 in the atmosphere. And why do you ask us now to clean it up?" -- so-called cumulative emissions. And when you look at the numbers, they are right. From 1900 to 2005, in the last 100 years, the bulk of the emissions came from U.S. and Europe. So we have sympathy for them.

But if you look at the future, China's emissions between now and 2030 will grow so strongly that, even in cumulative terms, 130 years of time frame, they are coming close to European levels and approaching those of the United States.

And the second one, the argument, is on a per capita -- look at per capita emissions, don't look at the volumes. This is also true. There are 1.3 billion people. And today Chinese CO2 emissions per capita is much lower than the OECD countries. But again, 2030, Chinese per capita emissions will be very close to the European levels and approaching to those of the United States if they do not change their policies even in our reference scenario numbers.

So this huge growth in the CO2 emissions from China and India changes the pages -- the landscape of the international climate change debate. I am saying since a couple of months, we are convinced that this year China will be the largest emitting country of the world, overtaking the United States in 2007. And perhaps more strikingly, in 2015, they will be emitting 30 percent more emissions than the United States, and in 2030, 60 percent more emissions than the United States.

India will be the third-largest-emitting country in 2015. So in 2015, the order will be number one, China; number two, U.S.; number three, India. And these three countries put together will make more than 50 percent of the global CO2 emissions, which would mean that in the next Kyoto architecture, post-Kyoto architecture, without having all these three countries fully and wholeheartedly in the picture, we have no chance at all to reduce the CO2 emissions.

Let me go to another issue that I find very important, which means looking in our future. China and India are building lots of power plants, which is very normal because their economy is growing. And we expect, in the eight years we have in front of us until 2015, they will build about 800 gigawatts, which is equivalent to what Europe has built between -- after the Second World War and up to now. In eight years they are going to build that demand.

And this will be 90 percent coal-fire-powered plants. And once a power plant is built, it will be with us for 60 years. The economic lifetime is 60 years. And they will be emitting CO2 emissions for 60 years. So whatever they are going to build in the next 10 years, the implications will be with us for the next 60 years. It will be impossible or unfair to ask those countries to shut down their economic -- the viable power plants because we once saw in the U.S. or in Europe and elsewhere.

So the decisions which will be taken in China and India will have implications for 50 (years), 60 years, and our future can be locked in if they are going to be built as they are now foreseen in those countries.

Another example I can give you on the demand side -- very quick example: When you go to China, you see a lot of buildings, construction, in the televisions and so on. And in terms of statistics, I can give you one number, which I find very interesting: Every second square meter building built in the world is in China. So one square meter is in the rest of the world; the second one is in China. So 50 percent of all new buildings are in China. And as it stands now, they are -- the building quotes are very, very poor -- walls, windows, lighting -- so they will demand a lot of energy, and it will be very difficult to -- again, to ask them several years later before their lifetime is over to abolish, to collapse those buildings, and it will be very difficult to change this picture.

So this is a locked-in issue in the next 10 years on the demand side and the supply side -- what will be built in China and India may look in our future in terms of CO2 emissions and energy use. And looking at the numbers, we read a lot of investments for China, India and the rest of the world, but we do not think that we are running out of money. And looking at all of our energy resources -- oil, gas, coal, renewables and so on -- we do not think that we are running out of energy, but we think that we are running out of time. And this is the key issue that we wanted to highlight in this very book.

And we know that many countries in the world have sympathy with those thoughts and they want to change their economies, they want to change their energy policies and put new policies in place: more efficiency, more renewables and more nuclear power. And we said if those policies were to be introduced in our alternative scenario, how will it change this rather varied picture in the next years to come?

In terms of oil imports, in the reference scenario we see significant increase in the oil imports, and in our alternative scenario -- mainly as a result of more efficiency, vehicle fuel efficiency increase and using more biofuels -- oil imports are much less. So good for the oil security.

Second, CO2 emissions: Today we emit about 270 gigatons worldwide, and in the year 2030, in our reference scenario we will be emitting about 42 gigatons, which means that we will be in a trajectory which is in line up to 6 degrees Celsius increase in the earth's temperature, which is unacceptable. And in our alternative scenario, we can come to a trajectory much lower with those more efficiency, more renewables and more nuclear, which is 34 gigatons, which is still in line with the trajectory of 3 degrees.

So I would like to show you two last slides and leave it to you to consider the benefits of the alternative scenario. One of them is the economic efficiency of the alternative policies. Today in China, people -- when they get money in their pockets -- 10 (percent), 11 percent of GDP gross -- one of the first things what they do is buying air conditioners and refrigerators, which is very normal. They are booming. But efficiency standards are very, very low. With the same air conditioner -- the same comfort they want to get from the air conditioner compared to U.S., Europe, they have to use much more electricity because the efficiency levels are very, very poor. And we said as of 2008, what would happen if they would apply the same efficiency standards what you can find in every shop in Europe or in the United States or in Japan? The result is very simple: They can save electricity with those new regulations which is equal to building a Three Gorges Dam around 2020, and two Three Gorges Dams around 2030. So there is a lot of room for the economic -- the viable measures without making major technological breakthroughs.

I would like to show you one more issue which I believe will be at the heart of many discussions in the next years to come: namely, climate change and the temperature increase -- come back to that. I mentioned to you that today we have 270 gigatons and in 2030 there will be 42 gigatons, and it is around 6 degrees increase. In our alternative scenario, we come to 3 degrees increase. But many people in the world, including the G8 leaders, would like to see much lower level of CO2 emissions and much lower increase, which is 2 degrees level as they see, and it has been -- I just watched television the other day -- some of the candidates of this U.S. presidency are also after that -- such a huge, drastic change. And in order to come to 2 degrees level of increase of temperature, the CO2 emissions will need to go down to 23 gigatons -- much lower than today.

But it needs huge efforts. To just give you three examples: One, it is -- every power plant which are going to be built after 2012 should be carbon-free, which means either nuclear or renewables or with carbon capture and storage; two, energy intensity improvements have to be doubled; and three, you need the global political will and understanding to make this happen. And I believe this is very, very difficult.

So these are some of the numbers coming from reference and alternative scenario. Just to finish my presentation by telling you that if it was the high growth scenario, which is about 7.5 percent for the next 25 years on average, these numbers coming from China and India would be much more, if I may say so, scary, and implications will be much more grave. And this 7.5 percent growth is not out of question as it stands now.

So thank you very much for your attention. (Applause.)

VICTOR: Fatih, thank you very much for that overview on an extraordinary study and a very detailed study, which I commend to all of you.

We're going to talk for a couple minutes up here, and then we're going to put it out for more general questions.

I want to talk in a moment about China and India and climate change and coal and fuel, but first on the oil markets, you have this curious phrase that you repeated here today that a supply crunch cannot be ruled out. And it seems to me that looking at your own numbers that actually you think that we're actually on the edge of a really serious crisis. It seems like we're on the edge of a crisis. Oil production today is 86 million barrels a day. Your own scenarios look at a future of about 116 million barrels a day, maybe as high as 120 million barrels a day. You're having a hard time finding 12 million barrels a day to meet the shortfall. Just a few weeks ago, the big industry conference, the Oil & Money Conference, suggested that oil production is going to plateau at about 100 million barrels a day, which means we're almost there. How do these numbers add up? What's going to happen? Is oil going to go to double current levels? What's going to happen to the -- where are we going to find these supplies?

BIROL: Supplies -- the supplies are there, but they're under the ground. So this is the problem. And "they're under the ground" means most of them are concentrated in a very few number of countries. We have to understand that there is a structural change on the supply side now. It will not be only the markets which are going to decide for the -- how much oil will come to the markets in the future. It will be some governments, and those governments have legitimate considerations not to increase the production as much as the market wants. So there is a new game here and we have to recognize that.

So I believe, David, that it will be very difficult to see that the current high prices would go down significantly downwards and if we do not see significant increase in the production growth and also slow down of the oil demand growth, we may see even numbers which are higher than this. But I am not sure that such high level of prices are good for the producers' stances in the long term.

VICTOR: There's a chapter in the report on energy security, and one of the implications of what you're talking about was the concentration of production in the small number of countries to a greater degree in the future is that this could be harmful to energy security. Talk a little bit about what -- how China and India are seeing energy security because it's a single global market. Oil is a fungible commodity. They have as much stake in energy security as we do. What are they doing about this and is there an opportunity to exert more leverage on energy security by working more closely?

BIROL: I tried to describe two major issues or two interests, as I say. One of them is energy security, the second one is the climate change. I think looking at these threats, China and India takes the first one much more seriously than the second one, and when we talk about environment it's not the climate change. They put in the top of the agenda it is more the local pollution.

But in terms of energy security, I think they are trying to do three different level of things. First one is they are trying to build strategic stocks to pile -- stocks -- this is the first one and we are working together with them. The second one is they are trying to have a excess of some oil in some countries in Africa, in Latin America, most of them which are very questionable efforts in terms of the cost efficiency. And the third one is they are, especially China, is trying to improve the vehicle fuel efficiency to improve the oil demand growth. If I may say so, the average vehicle fuel efficiency in China is 20 percent better than in the United States.

VICTOR: I know there's no question the United States can do a lot more. Are there things that the United States is doing right now that are making the Chinese feel less secure about their energy supply and encouraging behavior that's harmful to the market?

BIROL: What a Chinese and Indian would like to see is that the -- they consider that oil market is a global market and they are making a lot of efforts. I tried to give the example of the car vehicle ownership and they think that if there is a effort to be done by the consumers they shouldn't be the first one looking at their consumption levels. It should be the major industrious countries including U.S. and Europe. It should start there, and they should have the responsibility to make the major reduction efforts. So I think they have some point there.

VICTOR: Let's switch and talk a couple questions about other aspects of the energy market other than oil. To get ready for this I went back and plotted the -- each year you come out with this report and I went back and plotted the share of world energy that you expect is going to come from coal over time. And over the last five or six years the share that the International Energy Agency expects will come from coal has been rising steadily, year after year.

How far does this go? Because it seems like the numbers you presented today about coal consumption -- and coal's the most carbon intensive -- the dirtiest of the fossil fuels -- the numbers you presented today it's hard to square those numbers with the goal of limiting climate change at 2 degrees and this 450 part per million scenario that you presented as well. Seem like the numbers just don't add up at all.

BIROL: They don't. I mean, if -- with these numbers you cannot reconcile the climate change implications and the coal consumption. The coal consumption is driven by China and India -- more than 80 percent -- and again, climate change is not at top of the agenda, and I believe I am representing the rich countries here -- 26 member countries -- I believe they are right because they need some incentive to go to more sustainable energy projects.

In India today, how can we say India not to use coal? It is the cheapest option and in India today, 420 million people have no access to electricity in -- especially in the rural half of India has no access to electricity. How can we say India not to use coal because it is bringing fuel emissions to the atmosphere? So we have to find the internal architecture to give signals to China and India, if we wish so, to grow more sustainable energy solutions rather than coal but in the absence of that, I'm afraid they are going to use a lot of coal.

VICTOR: You mention in the report that India is now already a large importer of coal, and this year for the first time, in my memory at least, China is a net importer of coal. Both countries are likely to become even bigger net importers of coal. Are we going to create, you know, coal security? I'm not even sure what the right term is. Are we going to create some of the same problems in the international coal market that we're seeing now in the oil market with dependence on imports?

BIROL: Exactly. It is -- it was one of the slides that I took out. It is --

(Cross talk.)

VICTOR: -- me about that.

BIROL: We talk about the oil prices a lot but looking at the coal prices, from 2006 to today coal prices have doubled. It's like $60 per ton. Bringing coal to Europe is about $125 now because of the pressure coming from China and India, and it is not only coal but all the commodities. We are going to see the pressure coming from these countries and prices going up. This is the rule of the game and, therefore, coal will be a issue but the good thing with coal is -- perhaps I should be not unfair -- oil and gas is concentrated in a very few number of countries in terms of production. Coal production is much more diverse throughout the world -- Australia, Canada, Russia and the United States and so on.

VICTOR: I know the international coal market is -- also the share of coal traded internationally is much smaller as a fraction of the total consumption. Two last questions from me and then I'll throw out to the audience. The first one concerns your -- how the Chinese and the Indians react to your story. Your report's been out for a month or so. You've not yet had a chance to travel to India to present it but you have been to China. Are the Chinese worried about another round of China bashing? How do they react to this study?

BIROL: In fact, the Chinese government -- we discussed with the top level Chinese people about our findings -- Chinese government is a bit surprised with our thinking. For example, they have some targets -- they say in 2000 -- between 2005 and 2010 they are going to improve the energy intensity by 20 percent. It's their target. But we have not put this in our reference scenario as the policies to go there are not there. The Chinese government cannot understand that something which is target is not in our thinking. So this is -- but this is not only Chinese government. I have the same problem with the European Commission.

European Commission says in the year 2020, 20 percent of our energy will come from renewables. So it is not in our numbers because the policies to go there are not there. To set the target is easy but to reach it is much more difficult. Therefore, we have this -- differences understanding but in general Chinese government agrees with our priorities for the energy policy to go through, namely more energy efficiency, more renewables and more nuclear. But they think that the challenges -- and I agree with them -- for them are so huge that they need the global cooperation and some -- perhaps some type of help from the Western countries, at least in terms of sharing our expertise with them.

VICTOR: The last question from me which is these discussions always end up focusing on China because, you know, China is so much bigger than India but your report looks at both countries and one of the great -- really wonderful surprises over the last few years is the seemingly durable economic growth in India. When you go to India and present this report what do you think they're going to say? How do you think they're going to react?

BIROL: India has -- I am -- we work with the Ministry of Power with India very closely -- the numbers more or less are the same but, again. The same issue here. Indian government has a target around 2010 to bring electricity to 420 million people in three years. It's impossible -- physically impossible. I mean, this is -- it's not going on and our numbers do not show that they will have electricity access -- these 420 million -- in three years of time. They call it universal electricity access program. So, therefore, I am worried that we will have -- again, try to explain to them why we are not coming there.

But again, highlighting the major problems for India, the investment framework for India is very, very poor in terms of energy. They have to improve that. Efficiency -- they have to improve their efficiency, and they have various opportunities to increase the domestic oil and gas production, and a better investment framework there can be very helpful. And they are making a lot of efforts, David, to be a refinery hub in the world, and we definitely commend their efforts in that respect.

VICTOR: Yeah, I visited their biggest new refinery. In three years they've built a whole refinery. It takes three years to site a new tank in the United States.

Okay. Who would like to ask the first question? In the back. Please state your name and affiliation.

QUESTIONER: Roman Martinez. I'm a private investor.

I found it very interesting that you barely mention nuclear, just mentioned it in passing. Isn't there a bigger role there for nuclear in the future?

BIROL: Definitely. There is a big role for nuclear, but the role is, unfortunately, in most cases, in the OECD countries' cases, it is on the paper. Nuclear can provide two major benefits for both of the challenges I mentioned.

I talked about the oil security today, but the gas security is a major issue as well. Today, 50 percent of the gas reserves worldwide are in two countries. Russia plus Iran make 50 percent of the program gas reserves -- two countries in the headlines of newspapers for energy and non-energy reasons. And nuclear can be a very good alternative to gas security context and it can provide a very good option. The second is the carbon dioxide emissions. Nuclear doesn't emit CO2 emissions, and this is, I think, a big benefit of nuclear power.

But nuclear has two problems: One, building a nuclear power plant is rather expensive. It is about $3 billion, one small-sized nuclear power. And to build that nuclear power plant in the OECD countries where the markets are denigrated, it is very difficult because of the first, cash. The capital is there, and in the absence of government providing the right investment framework -- it can be subsidies, it can be this and that, it is -- it seems very difficult.

In the developing countries, to fund $3 billion is also a big challenge and, therefore, the first one is the investment framework, should be reformulated. And the U.K. is very much advanced in that respect and in the U.S. there are some works on providing subsidies in that direction. This can make a revival of nuclear, and this is the first challenge.

The second challenge is the public acceptance problem. And still we have, in Europe and even in the United States, we have the public acceptance problem which we do not see in the developing countries that much. But the higher the prices, the more the people understand the climate change, I think, the more chances for nuclear to provide a bigger share in the global energy mix.

VICTOR: Next question.

QUESTIONER: Hi. Dan Rosen, China Strategic Advisory. Does less energy security -- i.e., higher prices for energy -- reduce the climate change problem -- i.e., is there a demand response to higher energy prices? And if we fix the energy security problem, are we not aggravating the climate change problem?

BIROL: I think energy security and climate change problems, you cannot find every time a policy which would help both of them at the same time. For example, using much more coal is good for energy security -- (inaudible) -- gas, but it's a very bad solution for the climate change.

But looking at the high prices, first of all, high prices doesn't mean that the international prices are high. Governments can put taxes on the domestic prices and you can still have high prices and the prices can go -- or the tax money can go some other purpose instead of going to the pockets of the producing countries only.

And I am sorry to tell you, but the price elasticity of energy is declining. This is bad news, at least in terms of the --

VICTOR: Just to define, elasticity is a response in demand to an increase in --

(Cross talk.)

BIROL: Exactly. Exactly, thank you.

This is -- the story is here. The oil, if you'll get to oil, oil is concentrated more and more on the transportation sector, using in cars, trucks, and jets. And you do not have available alternatives to oil that you can switch to. And if it was electricity generation, or using oil in electricity generation, you can switch to coal, gas, renewables and nuclear. But in terms of transportation, you have no alternatives. This is the problem.

And in developing countries, there are a lot of subsidies providing a cushion for the process to go through. And therefore it is very dramatic to see that in the last three years energy prices, in aggregate terms, in real terms, more than tripled. And we are expecting the highest fuel to emissions growth. So, therefore, putting a carbon tax generally may not be as effective as we think in the current energy system.

VICTOR: And just to add to Dan's point, it seems that when oil prices went up, gas prices went up with them. And that explains a big part of this result in all of your studies, which is that your models and the real world is turning away from natural gas, which is much less carbon-intensive, and turning to coal. And so it could be, ironically, that high energy prices have actually made the climate problem worse.

BIROL: Yeah.

VICTOR: Next question here, and then here.

QUESTIONER: Hi. Michelle Vellid (sp), Pyro Energy Group. Thanks for the presentation. I just wanted to know what was the average price that you were assuming in the reference case and in the 450 case?

BIROL: For the reference scenario it's about $65 WTI, in real terms; $65 which is, again, very high, I would say.

VICTOR: WTI is West Texas Intermediate, which is a benchmark for oil prices.

BIROL: Yes, this is the oil price of $65 per barrel. And in our high growth scenario, which I didn't have time to look into, if there are so much more pressure coming from China and India, we expect the prices to be about $100, again, the international oil prices, about $100, which is because of the higher pressure coming from China and India and not enough response coming from the -- on the supply side.

VICTOR: Okay. Next question here.

QUESTIONER: Bob Lifton, Medis Technologies. You did not put any credence in any alternative energy sources. You didn't mention wind, sun, fuel cells or anything like that. Is that because you don't expect them to happen, or because they're so minute relative to the problem?

BIROL: In the alternative scenario, when I said renewables, there are three of them are very important: wind, hydro and the biomass, biofuels. These are very important; they are growing very fast, but they are not at the level that they are going to change the game. So this is, I think, their share today are very, very small. It is about 4 percent of total global energy mix. And if they come to, in 2030, more than double their share, it's very good, it's very nice, but still that will be a very small part of the primary energy mix.

So we do not see-- this is the bad news, because I can give you -- (audio break) -- the bad news today -- we do not see a major technological breakthrough in the next 20 years that would change the game. So we are not -- we don't see any major changes there. There are some primitive technologies, such as the carbon capture and storage, but even this one is far from being commercially, legally and technologically viable in the next 10, 15 years.

VICTOR: Why is it that, given the sober truth that the political process still sets, it seems like, targets that are more and more disconnected from reality -- I'm still waiting for somebody to advocate a more-than-100 percent renewable power standard. (Laughter.) And it seems like these targets just have no connection to reality. What's going on?

BIROL: That is exactly a very important point, David. And the leaders come together and put targets, set targets without looking at the numbers. So this is the bad thing. And they -- on one hand, it is good they put a vision for everybody to look into, but since they are so far from the realities that they are, at the end of the day they harm the cause rather than they are helping the cause, because there's a big decollage the big difference between the targets and where we are.

VICTOR: Next question here, right in the middle.

QUESTIONER: Roger Altman, Evercore Partners. The implication of your fascinating analysis is that we're actually going to get to that 42 gigaton world emissions scenario. That's the clear implication. Is that your view, number one, that that's the most likely outcome? And number two, if you don't think it is, just outline quickly a scenario whereby we avoid it by some large margin? But that is certainly the implication of what you've said.

BIROL: A very good point. I can perhaps give -- tell you very briefly one example.

This reference scenario -- this 42 gigaton is a very bad scenario. We hate it because of the climate change implications. We hate it because of the energy security implications and our governments -- all of my 26 governments hate it. And we are doing this world energy outlook every year, as David said. And I am responsible for it since the last four or five years. And in 2002, we made the world energy outlook. We had the reference scenario and we said the same thing. These are very bad trends. We have to alter this, they are not sustainable and so on.

And I look at this 2002 world energy outlook, our projections for 2007 -- what we have projected and what is the data today. And our reference scenario -- this bad scenario of 2002 is better than where we are today. It is 1.5 gigaton lower CO2 emissions than what we are today in 2007. So we are even worse than the bad scenario -- our situation. So therefore we get the first catch the reference scenario, then go to alternative scenario, and don't go beyond that. So this is the reason -- what I am saying, this is a big difference between the political rhetoric and what is going on in the market for the numbers. This is the reason why I said we had to look at the numbers very, very carefully.

And therefore my belief is -- my hope is that we change the curve and we go to the alternative scenario, at least slowing down the CO2 emissions growth. But I am scared that if the governments continue to perform as they did in the last couple of years, we may be going to a level that the wheels may fall off in many aspects.

VICTOR: Next question here, and then we're going to go to the back.

QUESTIONER: Kim Davis (sp) from Charles Dunn Capital (ph).

Could you talk a bit about carbon capture? To the extent that coal is so clearly going to be a part of the scenario, is carbon capture a commercially feasible solution? How do the Chinese react when you talk about that -- and the United States, as well?

VICTOR: Let me just -- to make sure we're all on the same engineering page, carbon capture is a set of technologies where you build a coal plant that gives you a concentrated stream of CO2, which is the gas that causes climate change, and you bury it underground rather than letting it go up into the atmosphere. And a lot of different technologies that are being thought about for this.

BIROL: Thank you for the translation, David. You are very helpful today. (Laughter.)

Now carbon capture is a very promising technology, first of all. But I see three major problems. Firstly, the cost. It is much more costlier compared to the conventional technologies and in the absence of a carbon tax, for example, it would be very difficult that they see the light of the day without any intervention in terms of cost. Technology -- we still have some problems we have to solve in terms of the leakage of the CO2 gas to after transportation of the gas. And the third one, there are regulatory problems which are not solved in terms of carbon capture storage. But there's a lot of work going on -- research and development here. But it will be very risky to think that carbon capture and storage will save the -- or will address this problem. We have to really -- on the realistic side.

Talking with the Chinese, I can tell you that they are not at all -- perhaps it's a matter of research and development discipline for them. But in the real life -- in the decision-making, it's not there. What important for Chinese is to have more efficient power plants -- cleaner coal power plants with higher efficiency compared to what they used to build, unfortunately.

VICTOR: In the back there.

QUESTIONER: Mark Levinson, JPMorgan Chase.

The implication of your comments a moment ago on elasticity suggests that you think that permitting systems are a more effective way to deal with greenhouse gas emissions than tax systems. Obviously, that's a current debate here. Have you done any work in conjunction with this report on the extent to which, in the absence of leakage, permitting systems would have to reduce emissions? And is it really feasible to achieve that?

VICTOR: Do you want me to translate?

BIROL: Please.

VICTOR: The debate is whether you should put a cap on total emissions in the economy and then give everybody a right to pollute and have a market or a casino, depending on how you see it, versus a tax where you have a -- set a price on these emissions. And the concern about what's called leakage is that if you regulate these emissions in this country that industries are just going to move to other countries that don't have regulations like China -- which is not a hypothetical scenario -- and then export the goods back without regulation.

BIROL: So -- thank you again.

So your question is also a very good one. There are different options to address the climate change issue. If -- perhaps I could add to the translation here -- there's the Kyoto Protocol, and this Kyoto protocol is coming to the end -- and there will be a new architecture built very soon in the next couple of years and how this architecture will be -- it will be very crucial to be able to bring -- to reduce the CO2 emissions down. So we do not have any preference this way or that way. Our -- some of our governments favor this position, other governments prefer the other position. And in the next world energy outlook, they visit every year -- we focus on a subject. The next world energy outlook will be, "What are the post-Kyoto options and their pros and cons?"

Having said that, perhaps I can tell you one preference I have -- we should find the option which would have China, India and the United States on board, otherwise whatever theoretical formulation we have, we have no chance whatsoever to bring the CO2 emissions down. And when I say developing countries, it is very, very important, just let me give you one example. I said that if we don't do anything, we go to catastrophic scenario of 6 degrees increase -- that trajectory, and if we decide today that the CO2 emissions in all OECD countries -- U.S., Japan, Europe -- were to stop the growth, it will be stable for the next 25 years and developing counties will still emit CO2 emissions, we will be still on the 6 degrees trajectory. So not much will change. Therefore we have to find ways to get them on board, otherwise we are condemned to failure.

VICTOR: But Fatih, how do you do that, because the Chinese and the Indian governments have said they're not going to limit their emissions -- that it's the industrialized countries' problem. The countries that care the most about the climate change problem are the ones that seem to be the smallest and declining share of the problem itself.

BIROL: Yeah.

VICTOR: What actually do you do? When you go to China and you say all these things, what do they say they're going to do?

BIROL: They need some -- I mean, I don't want to preempt the emcee, but they need some incentives. In the absence of those incentives, it will be very difficult to change the trends.

You know much better than me, David, to mitigate one ton of CO2 in China and India is at least four times cheaper than doing it in some OECD countries. So we can find ways, some new architecture to make use of this potential in those countries, otherwise no chance.

VICTOR: Okay.

Next question here.

Please.

QUESTIONER: (Off mike.)

VICTOR: Wait for the microphone. Just a second.

QUESTIONER: There is a very efficient way to capture CO2 and nobody is trying it. You plant grass all over the place and you plant trees all over the place and you plant shrubs all over the place in very large numbers over large unused areas.

VICTOR: Fatih, this may be a little bit out of the realm of what you guys have focused on. What about planting trees and shrubs and grass?

BIROL: So I am -- to be honest with you, I am dealing with energy issues. But what I know is that -- not planting the tress, but the deforestation is a major part of the problem. And I think there are many countries who say that the forests that they have, which absorbs a lot of CO2 emissions, would get some credits in terms of the CO2 emissions, which in turn would provide incentives for the other countries to plant trees.

VICTOR: And just for folks who are watching the news, next week in Bali begins the next round of talks on this new architecture. And one of the issues that'll be the top of the agenda is a scheme for paying countries to not cut down their trees.

BIROL: Exactly.

VICTOR: How you're going to make that work is a little bit beyond me, but it's going to be interesting negotiations.

Next question.

QUESTIONER: Hi. Kimberly Marten from Barnard College.

Can you tell us what's the degree of scientific consensus on the relationship between the amount of CO2 emissions and the 6 degrees rise, for example? Is that pretty much accepted by everybody or is that a controversial figure?

BIROL: I think we admit this linkage between the CO2 emissions and the temperature increase, together with the IPCC scientists. And as far as I know, a big majority of the scientists agree with this level. And in fact, when I said 6 degrees, I wanted to say, in fact, I said up to 6 degrees. There is an interval there between 4.5 to 6.1 degrees, but even if it's 4.5 degrees, it's a huge increase in the -- I'm talking about Celsius here -- it is a huge increase which would have dramatic implications for the equilibrium of our planet.

VICTOR: And just for a little bit of more background -- IPCC is this intergovernmental process that's developed a consensus around the climate science. And I think one of the tenors in the climate science community today is that that process, because it's a consensus process, is actually very conservative. And so there's some risk -- not high probability -- but there's some risk that we could be out on a tail in the distribution where the climate warming -- climate -- so-called climate sensitivity is even greater than the consensus numbers that go into Fatih's calculations.

We have time for a couple more questions. One here and then the last one over there.

QUESTIONER: Thank you very much for a great presentation. Let me --

VICTOR: Say who you are.

QUESTIONER: Maurice Tempelsman.

Let me come back a little bit to what I think is a very important element in the new structure you're talking about, which really the disparity between the sins of the past and the needs of the future and your very sympathetic view towards the developing world, which I understand and I concur too. But there's a little bit of a flaw in that reasoning when you really do it, because that item was not on the agenda 100 years ago or 50 years ago. Technology has moved on.

Let me give you the flipside of what I mean. For instance, I work a lot in Africa. Telephony -- I mean, you have a whole continent which was changed because of portable telephony. Do they have, because they skipped one generation of wired telephony, should they pay for the wires in this -- there's a bit of an intellectual problem I've got with that. Could you get into that?

BIROL: You are right, but I should also tell you that the -- the CO2 emissions in the last 100 years in the atmosphere was during the Industrial Revolution of the OECD countries -- of the rich countries. And through using energy, they became rich. We became rich. And therefore, I think we should have understanding for their demand. This doesn't mean that the whole -- the responsibility is on the shoulders of the OECD countries, but I think they should be leading. They should have a leadership responsibility here. I do not say that OECD countries should pay for everything, but they have a leadership responsibility for what they have done in the last 100 years and help the China and India not to make perhaps the, if I may say so, the mistakes that we have done in the last 100 years.

So I would think that those countries have the point to look at the cumulative emissions. But as I tried to show, if they do not change their policies -- even in terms of cumulative emissions -- China will be reaching the OECD levels. So therefore, what should be, I believe, is the OECD countries should have the leadership to help China and India to have access to better technologies.

VICTOR: Last question -- exceptionally brief, please.

QUESTIONER: Elizabeth Bramwell, Bramwell Capital.

I wonder in your assumptions what your assumptions are on the value of the U.S. dollar and energy being -- continued to be valued in dollars.

BIROL: Okay. So, first of all, we have not made an assumption about the U.S. dollar versus other currencies and how they are going to change. We took the last two, three years of average and we kept it constant.

For the second question: Before working for the IEA, I worked six years for the OPEC secretariat. I started to work there some 20 years ago. And the first assignment they gave to me -- it was an Iranian rupee as I remember -- what would happen if the oil price was valued with Deutsche Mark? This was the request. And it didn't -- I make my job, I provided my report to my supervisor. I thought that, and I still believe that, if there's international trade, a global trade, and all of the goods and investments are made in one currency, it will be very difficult to change that currency and to go to other currencies. And I believe that the oil price will be valued in dollars for several years to come.

VICTOR: Well, it's an important reminder that a big chunk of the rise in the oil price we're seeing is a currency effect.

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DAVID VICTOR: Please, let me interrupt. Thank you very much.

I will remember not to bring up a plastic pen next time. Thank you, Rod, for clinking your glass.

It's really my great pleasure to open this meeting to discuss the world energy outlook. Let me just, before we begin, remind everybody to turn off your BlackBerrys, your fax machines, your satellite phones. The markets will be open at 2:00 when we finish. This meeting is on-the-record -- just as a reminder -- and we have some press here with us as well.

My name is David Victor. I'm an adjunct senior fellow here at the Council; I work on climate change and energy markets. I'm also a professor at Stanford Law School, where I teach regulation and work on similar issues.

It's my great pleasure to introduce Fatih Birol. You have Fatih's biography with the materials that were distributed before this meeting, so I won't go through his biography in detail except to say that he is the chief economist at the International Energy Agency, and I believe in that role, over many years, has now emerged as the single-most articulate spokesman about what is going on in the energy markets. And their flagship publication, which is produced in Fatih's shop, "The World Energy Outlook" has now become really a definitive document. And every year they work on a different topic. This year they're focusing on China and India.

And without further delay, let me introduce Fatih, who's going to give you a slideshow -- not the norm here in the Council -- but facts and numbers matter, and so Fatih's going to show us some facts and numbers. He's going to talk for 10 or 15 minutes and then we're going to have a Q&A up here and then we'll open it up for more general discussions.

Fatih. (Applause.)

FATIH BIROL: Good afternoon, ladies and gentlemen and bon appetite to all of you.

Thank you very much, David, for the kind introduction. I am sorry that I am going to use some slides, and there are two reasons: I am a man of numbers, so without numbers, I cannot say much; second, English is not my mother tongue, so it helps me a lot when the attention is there rather than on me. So sorry for using slides -- and I wanted to bring some facts to your attention, which I believe some of them are stunning. Looking at the Chinese and Indian growth in terms of energy demands implications for the CO2 emissions, as you will see in a minute, I believe they are stunning.

More generally, ladies and gentlemen, I believe that we are on the eve of a new world energy order. On the supply side there is a major transformation that we see very little chances -- oil and gas supply growth coming from very -- outside of a very few number of countries. When we look at the future, we see five or six countries which can be responsible for the growth on oil and gas production: Saudi Arabia, Iran, Iraq, Kuwait, UAE and Russia. There's one or two others, but these will be the main drivers of the oil and gas supply growth, which is very different than what we used to see in the past. And these countries' industry, oil and gas industry, is very different from what we saw in the past -- mainly driven by the national oil companies -- and most of these countries are in a region where it is particularly rather unstable.

Such a transformation is taking place on the supply side; and on the demand side, we see that the -- China and India are transforming our energy markets by their sheer size. I'm going to give you some numbers about our projections for the future, but if you don't believe our projections, which is completely legitimate -- (scattered laughter) -- you will see that in the last two years about 70 percent of the growth in global oil demand came from China plus India. About 80 percent on the global coal demand came from these two countries and many other surprises to come, we believe. So therefore, we made this book, as David said, on China and India. The book is not done just sitting in Paris in our comfortable -- rather comfortable headquarters -- and looking at the Internet and cut-and-paste type of work, but we did this study together with the Chinese and Indian government. The book was peer reviewed by about 150 experts throughout the world. And Mr. Chairman, David, is one of them. But we had 50 peer reviewers from China and India looking at our book.

There are many uncertainties today in the energy markets, as we all know -- as I'm sure most of you know much better than me on a daily life. And therefore, we have developed three scenarios that I'm going to go through very quickly with you. The first one is a reference scenario, which means how the global energy markets would look like in the next 25 years -- throughout the next 25 years -- if the current policies of the governments do not change. And as you will see here, we see a twin threat coming from this no-policy change picture: namely, increasing risks in the oil and gas security; and the second, increasing risk on the climate change front. And therefore, we know that many governments in the world -- OECD governments, Chinese and Indian governments -- are considering new policies to put in place in order to address both of these challenges and in some cases, one of them. For some governments, energy security is more important; for the others, environment. So what kind of policies -- more renewables, more efficiency and more nuclear power to address those challenges, but policies which are not yet implemented. So we look at them in our alternative scenario: What happens if those policies we have identified -- 1,500 policies on a country-by-country basis on this three major policy pillar -- more efficiency, more renewables and more nuclear -- what happens if those policies to be introduced?

Third, and the last scenario that I'm going to touch upon, is about the big uncertainty. The book is about 700 pages. If you have a chance, you may want to have a look at it. There are many numbers, assumptions and so on. If you ask me, what is the most critical number assumption, I would tell you it is the pace and the nature of the Chinese economic growth. So it's not only for our book, but for the oil markets, for climate change. It is very important how much China will grow and what kind of growth prospect they are going to follow. We all know that many international institutions have underestimated the Chinese growth in the last four or five years. And we said, if the Chinese growth was higher -- economic growth -- than we assume in our reference scenario, what happens? As usual, we made the projections for all the countries and all the regions and all the fields. And plus, one unique aspect of this book is not only analyzing China and India in depth -- their energy sector and environmental issues -- it has never been done before, but more importantly, to look at the implications of these developments on the global markets in terms of oil markets, CO2 emissions, investments and so on. Let me start with the reference scenario if no changes happen.

If no changes happen, we expect a fossil fuel future. So our energy mix will be dominated by oil, gas and coal. Perhaps a small note about coal here: We talk in many OECD countries we talk a lot on the wind, biofuels, PV, photobiotics and others. However, when you look at the numbers, last two years, it is coal which makes gigantic steps in terms of fuel mix growth. And in the future, we expect coal, with the current policies in place, will be the fuel which makes the biggest contribution to the global energy mix growth. Of course, the others are growing as well, but I just wanted to make a point on coal.

Role of China and India: China, according to our projections, will overtake the United States around 2010 as the largest energy consumer of the world. And just to put things in context, only in 2005 -- two years ago -- the U.S. was using 25 percent more energy than China. In around 2010, China will be overtaking the United States. And about 45 percent of the growth in the global energy demand will come from China, plus India. More than 80 percent of the growth from coal will come from these two countries.

In terms of investments, every 12th dollar which will go to the electricity sector in the world will go to China and India electricity sectors; so two countries, again, transforming the global energy markets on the demand side in a rather strong manner, and we feel their pressure day by day.

A word on the oil markets. Everybody is interested in the oil markets. We are known, as we are an intergovernmental organization, as a conservative institution. Rightly or wrongly, we have this stamp. I think that our numbers which we came out with is a bit of a surprise to many people that we think that the oil markets will remain tight in the next years to come. And to say that doesn't need a rocket scientist.

A couple of very important numbers. We expect, between now and 2015, there is a need for -- 37.5 million barrels per day of oil need to come to the markets -- 37.5; some of them, 13.6 million barrels per day, for the growth, to meet the growth in the demand, mainly driven by China and India, and the rest, which we sometimes forget, is to replace the fields which are declining, going to decline in the next years to come. So we need 37.5 million barrels per day new capacity to come to the markets.

And when we look at all the projects which are financially sanctioned, 230 projects, on a project-by-project basis, in OPEC and non-OPEC countries, they will add about 25 million barrels per day. So the difference is about 12.5 million barrels per day around 2015.

Can this gap be met? Theoretically, yes. But we need two things -- either more oil -- not more rhetoric -- more oil from the key producers, and slowing down the oil demand growth from key consuming countries. So if we have these both together, we can meet the gap. Otherwise we think a supply crunch in the next years to come cannot be ruled out, perhaps with the implication of escalation of oil prices.

When we talk about oil, let me tell you something about the big oil, what we see. Normally, when you look at the history of oil production, when the prices go up as it did in the last couple of years, the reserve replacement ratio of the key oil companies -- we look at the top five -- has to increase. But when we look at the numbers, we see rather a poor picture.

The reserve replacement ratio of the top five international oil companies are declining. This is mainly as a result of fields they are owning are in a decline trend; and second, they do not have access to major reserves, mainly in Middle East and elsewhere, as the investment to foreigners -- (inaudible) -- investment is closed and banned in those countries, and the national oil companies are in charge of developing the fields and having access to reserves.

So this is part of the new game that the decisions will be made by the national oil companies, and I think the IOCs are in an identity crisis now. They have to define their medium-term and longer-term strategies, what they are now going to do.

Going to the demand side, as I said, the major driver of the demand will be China and India; in fact, mainly China. According to our numbers, China will import about 10 million barrels per day of oil around 2015, and 13 million barrels per day of oil in 2030, similar to the United States. China, in terms of oil imports, will be United States tomorrow.

But even more perhaps strong finding is of the car ownerships. In 2006, the car sales in China overtook Japan. In 2015, they are going to overtake United States. However, the key story here is today in China, 20 persons out of 1,000 persons own a car. And in 2013, when they reach 13 million barrels per day, there will be 140 persons out of 1,000 persons own a car. And this compares with the United States today, that 850 persons out of 1,000 persons own a car.

So it would be very wrong and unfair, economically, ethically, to blame China for the troubles we are going to have in the oil markets, because in terms of vehicle ownership they are only a small portion of what we have in the U.S. or in Europe or elsewhere.

And another point here is that these numbers, the per capita car ownership numbers, are a function of the economic growth. And here in the beginning, as I said, these are all medium-level economic growth numbers. If the economic growth is much higher than our assumptions, the per capita ownership levels may be much higher, and therefore implications for oil demand may be much more stronger.

This is one part of the twin track, the oil security, oil markets. I would like to show you another aspect which we take very seriously, the carbon dioxide emissions problem. When you look at the CO2 emissions issue, we didn't want to look at it again from the eyes from Paris. We want to have empathy for China and India and look at their arguments.

One of the arguments that they have is that "You have" -- rich countries -- "throughout 100 years, during the Industrial Revolution, you put a lot of CO2 in the atmosphere. And why do you ask us now to clean it up?" -- so-called cumulative emissions. And when you look at the numbers, they are right. From 1900 to 2005, in the last 100 years, the bulk of the emissions came from U.S. and Europe. So we have sympathy for them.

But if you look at the future, China's emissions between now and 2030 will grow so strongly that, even in cumulative terms, 130 years of time frame, they are coming close to European levels and approaching those of the United States.

And the second one, the argument, is on a per capita -- look at per capita emissions, don't look at the volumes. This is also true. There are 1.3 billion people. And today Chinese CO2 emissions per capita is much lower than the OECD countries. But again, 2030, Chinese per capita emissions will be very close to the European levels and approaching to those of the United States if they do not change their policies even in our reference scenario numbers.

So this huge growth in the CO2 emissions from China and India changes the pages -- the landscape of the international climate change debate. I am saying since a couple of months, we are convinced that this year China will be the largest emitting country of the world, overtaking the United States in 2007. And perhaps more strikingly, in 2015, they will be emitting 30 percent more emissions than the United States, and in 2030, 60 percent more emissions than the United States.

India will be the third-largest-emitting country in 2015. So in 2015, the order will be number one, China; number two, U.S.; number three, India. And these three countries put together will make more than 50 percent of the global CO2 emissions, which would mean that in the next Kyoto architecture, post-Kyoto architecture, without having all these three countries fully and wholeheartedly in the picture, we have no chance at all to reduce the CO2 emissions.

Let me go to another issue that I find very important, which means looking in our future. China and India are building lots of power plants, which is very normal because their economy is growing. And we expect, in the eight years we have in front of us until 2015, they will build about 800 gigawatts, which is equivalent to what Europe has built between -- after the Second World War and up to now. In eight years they are going to build that demand.

And this will be 90 percent coal-fire-powered plants. And once a power plant is built, it will be with us for 60 years. The economic lifetime is 60 years. And they will be emitting CO2 emissions for 60 years. So whatever they are going to build in the next 10 years, the implications will be with us for the next 60 years. It will be impossible or unfair to ask those countries to shut down their economic -- the viable power plants because we once saw in the U.S. or in Europe and elsewhere.

So the decisions which will be taken in China and India will have implications for 50 (years), 60 years, and our future can be locked in if they are going to be built as they are now foreseen in those countries.

Another example I can give you on the demand side -- very quick example: When you go to China, you see a lot of buildings, construction, in the televisions and so on. And in terms of statistics, I can give you one number, which I find very interesting: Every second square meter building built in the world is in China. So one square meter is in the rest of the world; the second one is in China. So 50 percent of all new buildings are in China. And as it stands now, they are -- the building quotes are very, very poor -- walls, windows, lighting -- so they will demand a lot of energy, and it will be very difficult to -- again, to ask them several years later before their lifetime is over to abolish, to collapse those buildings, and it will be very difficult to change this picture.

So this is a locked-in issue in the next 10 years on the demand side and the supply side -- what will be built in China and India may look in our future in terms of CO2 emissions and energy use. And looking at the numbers, we read a lot of investments for China, India and the rest of the world, but we do not think that we are running out of money. And looking at all of our energy resources -- oil, gas, coal, renewables and so on -- we do not think that we are running out of energy, but we think that we are running out of time. And this is the key issue that we wanted to highlight in this very book.

And we know that many countries in the world have sympathy with those thoughts and they want to change their economies, they want to change their energy policies and put new policies in place: more efficiency, more renewables and more nuclear power. And we said if those policies were to be introduced in our alternative scenario, how will it change this rather varied picture in the next years to come?

In terms of oil imports, in the reference scenario we see significant increase in the oil imports, and in our alternative scenario -- mainly as a result of more efficiency, vehicle fuel efficiency increase and using more biofuels -- oil imports are much less. So good for the oil security.

Second, CO2 emissions: Today we emit about 270 gigatons worldwide, and in the year 2030, in our reference scenario we will be emitting about 42 gigatons, which means that we will be in a trajectory which is in line up to 6 degrees Celsius increase in the earth's temperature, which is unacceptable. And in our alternative scenario, we can come to a trajectory much lower with those more efficiency, more renewables and more nuclear, which is 34 gigatons, which is still in line with the trajectory of 3 degrees.

So I would like to show you two last slides and leave it to you to consider the benefits of the alternative scenario. One of them is the economic efficiency of the alternative policies. Today in China, people -- when they get money in their pockets -- 10 (percent), 11 percent of GDP gross -- one of the first things what they do is buying air conditioners and refrigerators, which is very normal. They are booming. But efficiency standards are very, very low. With the same air conditioner -- the same comfort they want to get from the air conditioner compared to U.S., Europe, they have to use much more electricity because the efficiency levels are very, very poor. And we said as of 2008, what would happen if they would apply the same efficiency standards what you can find in every shop in Europe or in the United States or in Japan? The result is very simple: They can save electricity with those new regulations which is equal to building a Three Gorges Dam around 2020, and two Three Gorges Dams around 2030. So there is a lot of room for the economic -- the viable measures without making major technological breakthroughs.

I would like to show you one more issue which I believe will be at the heart of many discussions in the next years to come: namely, climate change and the temperature increase -- come back to that. I mentioned to you that today we have 270 gigatons and in 2030 there will be 42 gigatons, and it is around 6 degrees increase. In our alternative scenario, we come to 3 degrees increase. But many people in the world, including the G8 leaders, would like to see much lower level of CO2 emissions and much lower increase, which is 2 degrees level as they see, and it has been -- I just watched television the other day -- some of the candidates of this U.S. presidency are also after that -- such a huge, drastic change. And in order to come to 2 degrees level of increase of temperature, the CO2 emissions will need to go down to 23 gigatons -- much lower than today.

But it needs huge efforts. To just give you three examples: One, it is -- every power plant which are going to be built after 2012 should be carbon-free, which means either nuclear or renewables or with carbon capture and storage; two, energy intensity improvements have to be doubled; and three, you need the global political will and understanding to make this happen. And I believe this is very, very difficult.

So these are some of the numbers coming from reference and alternative scenario. Just to finish my presentation by telling you that if it was the high growth scenario, which is about 7.5 percent for the next 25 years on average, these numbers coming from China and India would be much more, if I may say so, scary, and implications will be much more grave. And this 7.5 percent growth is not out of question as it stands now.

So thank you very much for your attention. (Applause.)

VICTOR: Fatih, thank you very much for that overview on an extraordinary study and a very detailed study, which I commend to all of you.

We're going to talk for a couple minutes up here, and then we're going to put it out for more general questions.

I want to talk in a moment about China and India and climate change and coal and fuel, but first on the oil markets, you have this curious phrase that you repeated here today that a supply crunch cannot be ruled out. And it seems to me that looking at your own numbers that actually you think that we're actually on the edge of a really serious crisis. It seems like we're on the edge of a crisis. Oil production today is 86 million barrels a day. Your own scenarios look at a future of about 116 million barrels a day, maybe as high as 120 million barrels a day. You're having a hard time finding 12 million barrels a day to meet the shortfall. Just a few weeks ago, the big industry conference, the Oil & Money Conference, suggested that oil production is going to plateau at about 100 million barrels a day, which means we're almost there. How do these numbers add up? What's going to happen? Is oil going to go to double current levels? What's going to happen to the -- where are we going to find these supplies?

BIROL: Supplies -- the supplies are there, but they're under the ground. So this is the problem. And "they're under the ground" means most of them are concentrated in a very few number of countries. We have to understand that there is a structural change on the supply side now. It will not be only the markets which are going to decide for the -- how much oil will come to the markets in the future. It will be some governments, and those governments have legitimate considerations not to increase the production as much as the market wants. So there is a new game here and we have to recognize that.

So I believe, David, that it will be very difficult to see that the current high prices would go down significantly downwards and if we do not see significant increase in the production growth and also slow down of the oil demand growth, we may see even numbers which are higher than this. But I am not sure that such high level of prices are good for the producers' stances in the long term.

VICTOR: There's a chapter in the report on energy security, and one of the implications of what you're talking about was the concentration of production in the small number of countries to a greater degree in the future is that this could be harmful to energy security. Talk a little bit about what -- how China and India are seeing energy security because it's a single global market. Oil is a fungible commodity. They have as much stake in energy security as we do. What are they doing about this and is there an opportunity to exert more leverage on energy security by working more closely?

BIROL: I tried to describe two major issues or two interests, as I say. One of them is energy security, the second one is the climate change. I think looking at these threats, China and India takes the first one much more seriously than the second one, and when we talk about environment it's not the climate change. They put in the top of the agenda it is more the local pollution.

But in terms of energy security, I think they are trying to do three different level of things. First one is they are trying to build strategic stocks to pile -- stocks -- this is the first one and we are working together with them. The second one is they are trying to have a excess of some oil in some countries in Africa, in Latin America, most of them which are very questionable efforts in terms of the cost efficiency. And the third one is they are, especially China, is trying to improve the vehicle fuel efficiency to improve the oil demand growth. If I may say so, the average vehicle fuel efficiency in China is 20 percent better than in the United States.

VICTOR: I know there's no question the United States can do a lot more. Are there things that the United States is doing right now that are making the Chinese feel less secure about their energy supply and encouraging behavior that's harmful to the market?

BIROL: What a Chinese and Indian would like to see is that the -- they consider that oil market is a global market and they are making a lot of efforts. I tried to give the example of the car vehicle ownership and they think that if there is a effort to be done by the consumers they shouldn't be the first one looking at their consumption levels. It should be the major industrious countries including U.S. and Europe. It should start there, and they should have the responsibility to make the major reduction efforts. So I think they have some point there.

VICTOR: Let's switch and talk a couple questions about other aspects of the energy market other than oil. To get ready for this I went back and plotted the -- each year you come out with this report and I went back and plotted the share of world energy that you expect is going to come from coal over time. And over the last five or six years the share that the International Energy Agency expects will come from coal has been rising steadily, year after year.

How far does this go? Because it seems like the numbers you presented today about coal consumption -- and coal's the most carbon intensive -- the dirtiest of the fossil fuels -- the numbers you presented today it's hard to square those numbers with the goal of limiting climate change at 2 degrees and this 450 part per million scenario that you presented as well. Seem like the numbers just don't add up at all.

BIROL: They don't. I mean, if -- with these numbers you cannot reconcile the climate change implications and the coal consumption. The coal consumption is driven by China and India -- more than 80 percent -- and again, climate change is not at top of the agenda, and I believe I am representing the rich countries here -- 26 member countries -- I believe they are right because they need some incentive to go to more sustainable energy projects.

In India today, how can we say India not to use coal? It is the cheapest option and in India today, 420 million people have no access to electricity in -- especially in the rural half of India has no access to electricity. How can we say India not to use coal because it is bringing fuel emissions to the atmosphere? So we have to find the internal architecture to give signals to China and India, if we wish so, to grow more sustainable energy solutions rather than coal but in the absence of that, I'm afraid they are going to use a lot of coal.

VICTOR: You mention in the report that India is now already a large importer of coal, and this year for the first time, in my memory at least, China is a net importer of coal. Both countries are likely to become even bigger net importers of coal. Are we going to create, you know, coal security? I'm not even sure what the right term is. Are we going to create some of the same problems in the international coal market that we're seeing now in the oil market with dependence on imports?

BIROL: Exactly. It is -- it was one of the slides that I took out. It is --

(Cross talk.)

VICTOR: -- me about that.

BIROL: We talk about the oil prices a lot but looking at the coal prices, from 2006 to today coal prices have doubled. It's like $60 per ton. Bringing coal to Europe is about $125 now because of the pressure coming from China and India, and it is not only coal but all the commodities. We are going to see the pressure coming from these countries and prices going up. This is the rule of the game and, therefore, coal will be a issue but the good thing with coal is -- perhaps I should be not unfair -- oil and gas is concentrated in a very few number of countries in terms of production. Coal production is much more diverse throughout the world -- Australia, Canada, Russia and the United States and so on.

VICTOR: I know the international coal market is -- also the share of coal traded internationally is much smaller as a fraction of the total consumption. Two last questions from me and then I'll throw out to the audience. The first one concerns your -- how the Chinese and the Indians react to your story. Your report's been out for a month or so. You've not yet had a chance to travel to India to present it but you have been to China. Are the Chinese worried about another round of China bashing? How do they react to this study?

BIROL: In fact, the Chinese government -- we discussed with the top level Chinese people about our findings -- Chinese government is a bit surprised with our thinking. For example, they have some targets -- they say in 2000 -- between 2005 and 2010 they are going to improve the energy intensity by 20 percent. It's their target. But we have not put this in our reference scenario as the policies to go there are not there. The Chinese government cannot understand that something which is target is not in our thinking. So this is -- but this is not only Chinese government. I have the same problem with the European Commission.

European Commission says in the year 2020, 20 percent of our energy will come from renewables. So it is not in our numbers because the policies to go there are not there. To set the target is easy but to reach it is much more difficult. Therefore, we have this -- differences understanding but in general Chinese government agrees with our priorities for the energy policy to go through, namely more energy efficiency, more renewables and more nuclear. But they think that the challenges -- and I agree with them -- for them are so huge that they need the global cooperation and some -- perhaps some type of help from the Western countries, at least in terms of sharing our expertise with them.

VICTOR: The last question from me which is these discussions always end up focusing on China because, you know, China is so much bigger than India but your report looks at both countries and one of the great -- really wonderful surprises over the last few years is the seemingly durable economic growth in India. When you go to India and present this report what do you think they're going to say? How do you think they're going to react?

BIROL: India has -- I am -- we work with the Ministry of Power with India very closely -- the numbers more or less are the same but, again. The same issue here. Indian government has a target around 2010 to bring electricity to 420 million people in three years. It's impossible -- physically impossible. I mean, this is -- it's not going on and our numbers do not show that they will have electricity access -- these 420 million -- in three years of time. They call it universal electricity access program. So, therefore, I am worried that we will have -- again, try to explain to them why we are not coming there.

But again, highlighting the major problems for India, the investment framework for India is very, very poor in terms of energy. They have to improve that. Efficiency -- they have to improve their efficiency, and they have various opportunities to increase the domestic oil and gas production, and a better investment framework there can be very helpful. And they are making a lot of efforts, David, to be a refinery hub in the world, and we definitely commend their efforts in that respect.

VICTOR: Yeah, I visited their biggest new refinery. In three years they've built a whole refinery. It takes three years to site a new tank in the United States.

Okay. Who would like to ask the first question? In the back. Please state your name and affiliation.

QUESTIONER: Roman Martinez. I'm a private investor.

I found it very interesting that you barely mention nuclear, just mentioned it in passing. Isn't there a bigger role there for nuclear in the future?

BIROL: Definitely. There is a big role for nuclear, but the role is, unfortunately, in most cases, in the OECD countries' cases, it is on the paper. Nuclear can provide two major benefits for both of the challenges I mentioned.

I talked about the oil security today, but the gas security is a major issue as well. Today, 50 percent of the gas reserves worldwide are in two countries. Russia plus Iran make 50 percent of the program gas reserves -- two countries in the headlines of newspapers for energy and non-energy reasons. And nuclear can be a very good alternative to gas security context and it can provide a very good option. The second is the carbon dioxide emissions. Nuclear doesn't emit CO2 emissions, and this is, I think, a big benefit of nuclear power.

But nuclear has two problems: One, building a nuclear power plant is rather expensive. It is about $3 billion, one small-sized nuclear power. And to build that nuclear power plant in the OECD countries where the markets are denigrated, it is very difficult because of the first, cash. The capital is there, and in the absence of government providing the right investment framework -- it can be subsidies, it can be this and that, it is -- it seems very difficult.

In the developing countries, to fund $3 billion is also a big challenge and, therefore, the first one is the investment framework, should be reformulated. And the U.K. is very much advanced in that respect and in the U.S. there are some works on providing subsidies in that direction. This can make a revival of nuclear, and this is the first challenge.

The second challenge is the public acceptance problem. And still we have, in Europe and even in the United States, we have the public acceptance problem which we do not see in the developing countries that much. But the higher the prices, the more the people understand the climate change, I think, the more chances for nuclear to provide a bigger share in the global energy mix.

VICTOR: Next question.

QUESTIONER: Hi. Dan Rosen, China Strategic Advisory. Does less energy security -- i.e., higher prices for energy -- reduce the climate change problem -- i.e., is there a demand response to higher energy prices? And if we fix the energy security problem, are we not aggravating the climate change problem?

BIROL: I think energy security and climate change problems, you cannot find every time a policy which would help both of them at the same time. For example, using much more coal is good for energy security -- (inaudible) -- gas, but it's a very bad solution for the climate change.

But looking at the high prices, first of all, high prices doesn't mean that the international prices are high. Governments can put taxes on the domestic prices and you can still have high prices and the prices can go -- or the tax money can go some other purpose instead of going to the pockets of the producing countries only.

And I am sorry to tell you, but the price elasticity of energy is declining. This is bad news, at least in terms of the --

VICTOR: Just to define, elasticity is a response in demand to an increase in --

(Cross talk.)

BIROL: Exactly. Exactly, thank you.

This is -- the story is here. The oil, if you'll get to oil, oil is concentrated more and more on the transportation sector, using in cars, trucks, and jets. And you do not have available alternatives to oil that you can switch to. And if it was electricity generation, or using oil in electricity generation, you can switch to coal, gas, renewables and nuclear. But in terms of transportation, you have no alternatives. This is the problem.

And in developing countries, there are a lot of subsidies providing a cushion for the process to go through. And therefore it is very dramatic to see that in the last three years energy prices, in aggregate terms, in real terms, more than tripled. And we are expecting the highest fuel to emissions growth. So, therefore, putting a carbon tax generally may not be as effective as we think in the current energy system.

VICTOR: And just to add to Dan's point, it seems that when oil prices went up, gas prices went up with them. And that explains a big part of this result in all of your studies, which is that your models and the real world is turning away from natural gas, which is much less carbon-intensive, and turning to coal. And so it could be, ironically, that high energy prices have actually made the climate problem worse.

BIROL: Yeah.

VICTOR: Next question here, and then here.

QUESTIONER: Hi. Michelle Vellid (sp), Pyro Energy Group. Thanks for the presentation. I just wanted to know what was the average price that you were assuming in the reference case and in the 450 case?

BIROL: For the reference scenario it's about $65 WTI, in real terms; $65 which is, again, very high, I would say.

VICTOR: WTI is West Texas Intermediate, which is a benchmark for oil prices.

BIROL: Yes, this is the oil price of $65 per barrel. And in our high growth scenario, which I didn't have time to look into, if there are so much more pressure coming from China and India, we expect the prices to be about $100, again, the international oil prices, about $100, which is because of the higher pressure coming from China and India and not enough response coming from the -- on the supply side.

VICTOR: Okay. Next question here.

QUESTIONER: Bob Lifton, Medis Technologies. You did not put any credence in any alternative energy sources. You didn't mention wind, sun, fuel cells or anything like that. Is that because you don't expect them to happen, or because they're so minute relative to the problem?

BIROL: In the alternative scenario, when I said renewables, there are three of them are very important: wind, hydro and the biomass, biofuels. These are very important; they are growing very fast, but they are not at the level that they are going to change the game. So this is, I think, their share today are very, very small. It is about 4 percent of total global energy mix. And if they come to, in 2030, more than double their share, it's very good, it's very nice, but still that will be a very small part of the primary energy mix.

So we do not see-- this is the bad news, because I can give you -- (audio break) -- the bad news today -- we do not see a major technological breakthrough in the next 20 years that would change the game. So we are not -- we don't see any major changes there. There are some primitive technologies, such as the carbon capture and storage, but even this one is far from being commercially, legally and technologically viable in the next 10, 15 years.

VICTOR: Why is it that, given the sober truth that the political process still sets, it seems like, targets that are more and more disconnected from reality -- I'm still waiting for somebody to advocate a more-than-100 percent renewable power standard. (Laughter.) And it seems like these targets just have no connection to reality. What's going on?

BIROL: That is exactly a very important point, David. And the leaders come together and put targets, set targets without looking at the numbers. So this is the bad thing. And they -- on one hand, it is good they put a vision for everybody to look into, but since they are so far from the realities that they are, at the end of the day they harm the cause rather than they are helping the cause, because there's a big decollage the big difference between the targets and where we are.

VICTOR: Next question here, right in the middle.

QUESTIONER: Roger Altman, Evercore Partners. The implication of your fascinating analysis is that we're actually going to get to that 42 gigaton world emissions scenario. That's the clear implication. Is that your view, number one, that that's the most likely outcome? And number two, if you don't think it is, just outline quickly a scenario whereby we avoid it by some large margin? But that is certainly the implication of what you've said.

BIROL: A very good point. I can perhaps give -- tell you very briefly one example.

This reference scenario -- this 42 gigaton is a very bad scenario. We hate it because of the climate change implications. We hate it because of the energy security implications and our governments -- all of my 26 governments hate it. And we are doing this world energy outlook every year, as David said. And I am responsible for it since the last four or five years. And in 2002, we made the world energy outlook. We had the reference scenario and we said the same thing. These are very bad trends. We have to alter this, they are not sustainable and so on.

And I look at this 2002 world energy outlook, our projections for 2007 -- what we have projected and what is the data today. And our reference scenario -- this bad scenario of 2002 is better than where we are today. It is 1.5 gigaton lower CO2 emissions than what we are today in 2007. So we are even worse than the bad scenario -- our situation. So therefore we get the first catch the reference scenario, then go to alternative scenario, and don't go beyond that. So this is the reason -- what I am saying, this is a big difference between the political rhetoric and what is going on in the market for the numbers. This is the reason why I said we had to look at the numbers very, very carefully.

And therefore my belief is -- my hope is that we change the curve and we go to the alternative scenario, at least slowing down the CO2 emissions growth. But I am scared that if the governments continue to perform as they did in the last couple of years, we may be going to a level that the wheels may fall off in many aspects.

VICTOR: Next question here, and then we're going to go to the back.

QUESTIONER: Kim Davis (sp) from Charles Dunn Capital (ph).

Could you talk a bit about carbon capture? To the extent that coal is so clearly going to be a part of the scenario, is carbon capture a commercially feasible solution? How do the Chinese react when you talk about that -- and the United States, as well?

VICTOR: Let me just -- to make sure we're all on the same engineering page, carbon capture is a set of technologies where you build a coal plant that gives you a concentrated stream of CO2, which is the gas that causes climate change, and you bury it underground rather than letting it go up into the atmosphere. And a lot of different technologies that are being thought about for this.

BIROL: Thank you for the translation, David. You are very helpful today. (Laughter.)

Now carbon capture is a very promising technology, first of all. But I see three major problems. Firstly, the cost. It is much more costlier compared to the conventional technologies and in the absence of a carbon tax, for example, it would be very difficult that they see the light of the day without any intervention in terms of cost. Technology -- we still have some problems we have to solve in terms of the leakage of the CO2 gas to after transportation of the gas. And the third one, there are regulatory problems which are not solved in terms of carbon capture storage. But there's a lot of work going on -- research and development here. But it will be very risky to think that carbon capture and storage will save the -- or will address this problem. We have to really -- on the realistic side.

Talking with the Chinese, I can tell you that they are not at all -- perhaps it's a matter of research and development discipline for them. But in the real life -- in the decision-making, it's not there. What important for Chinese is to have more efficient power plants -- cleaner coal power plants with higher efficiency compared to what they used to build, unfortunately.

VICTOR: In the back there.

QUESTIONER: Mark Levinson, JPMorgan Chase.

The implication of your comments a moment ago on elasticity suggests that you think that permitting systems are a more effective way to deal with greenhouse gas emissions than tax systems. Obviously, that's a current debate here. Have you done any work in conjunction with this report on the extent to which, in the absence of leakage, permitting systems would have to reduce emissions? And is it really feasible to achieve that?

VICTOR: Do you want me to translate?

BIROL: Please.

VICTOR: The debate is whether you should put a cap on total emissions in the economy and then give everybody a right to pollute and have a market or a casino, depending on how you see it, versus a tax where you have a -- set a price on these emissions. And the concern about what's called leakage is that if you regulate these emissions in this country that industries are just going to move to other countries that don't have regulations like China -- which is not a hypothetical scenario -- and then export the goods back without regulation.

BIROL: So -- thank you again.

So your question is also a very good one. There are different options to address the climate change issue. If -- perhaps I could add to the translation here -- there's the Kyoto Protocol, and this Kyoto protocol is coming to the end -- and there will be a new architecture built very soon in the next couple of years and how this architecture will be -- it will be very crucial to be able to bring -- to reduce the CO2 emissions down. So we do not have any preference this way or that way. Our -- some of our governments favor this position, other governments prefer the other position. And in the next world energy outlook, they visit every year -- we focus on a subject. The next world energy outlook will be, "What are the post-Kyoto options and their pros and cons?"

Having said that, perhaps I can tell you one preference I have -- we should find the option which would have China, India and the United States on board, otherwise whatever theoretical formulation we have, we have no chance whatsoever to bring the CO2 emissions down. And when I say developing countries, it is very, very important, just let me give you one example. I said that if we don't do anything, we go to catastrophic scenario of 6 degrees increase -- that trajectory, and if we decide today that the CO2 emissions in all OECD countries -- U.S., Japan, Europe -- were to stop the growth, it will be stable for the next 25 years and developing counties will still emit CO2 emissions, we will be still on the 6 degrees trajectory. So not much will change. Therefore we have to find ways to get them on board, otherwise we are condemned to failure.

VICTOR: But Fatih, how do you do that, because the Chinese and the Indian governments have said they're not going to limit their emissions -- that it's the industrialized countries' problem. The countries that care the most about the climate change problem are the ones that seem to be the smallest and declining share of the problem itself.

BIROL: Yeah.

VICTOR: What actually do you do? When you go to China and you say all these things, what do they say they're going to do?

BIROL: They need some -- I mean, I don't want to preempt the emcee, but they need some incentives. In the absence of those incentives, it will be very difficult to change the trends.

You know much better than me, David, to mitigate one ton of CO2 in China and India is at least four times cheaper than doing it in some OECD countries. So we can find ways, some new architecture to make use of this potential in those countries, otherwise no chance.

VICTOR: Okay.

Next question here.

Please.

QUESTIONER: (Off mike.)

VICTOR: Wait for the microphone. Just a second.

QUESTIONER: There is a very efficient way to capture CO2 and nobody is trying it. You plant grass all over the place and you plant trees all over the place and you plant shrubs all over the place in very large numbers over large unused areas.

VICTOR: Fatih, this may be a little bit out of the realm of what you guys have focused on. What about planting trees and shrubs and grass?

BIROL: So I am -- to be honest with you, I am dealing with energy issues. But what I know is that -- not planting the tress, but the deforestation is a major part of the problem. And I think there are many countries who say that the forests that they have, which absorbs a lot of CO2 emissions, would get some credits in terms of the CO2 emissions, which in turn would provide incentives for the other countries to plant trees.

VICTOR: And just for folks who are watching the news, next week in Bali begins the next round of talks on this new architecture. And one of the issues that'll be the top of the agenda is a scheme for paying countries to not cut down their trees.

BIROL: Exactly.

VICTOR: How you're going to make that work is a little bit beyond me, but it's going to be interesting negotiations.

Next question.

QUESTIONER: Hi. Kimberly Marten from Barnard College.

Can you tell us what's the degree of scientific consensus on the relationship between the amount of CO2 emissions and the 6 degrees rise, for example? Is that pretty much accepted by everybody or is that a controversial figure?

BIROL: I think we admit this linkage between the CO2 emissions and the temperature increase, together with the IPCC scientists. And as far as I know, a big majority of the scientists agree with this level. And in fact, when I said 6 degrees, I wanted to say, in fact, I said up to 6 degrees. There is an interval there between 4.5 to 6.1 degrees, but even if it's 4.5 degrees, it's a huge increase in the -- I'm talking about Celsius here -- it is a huge increase which would have dramatic implications for the equilibrium of our planet.

VICTOR: And just for a little bit of more background -- IPCC is this intergovernmental process that's developed a consensus around the climate science. And I think one of the tenors in the climate science community today is that that process, because it's a consensus process, is actually very conservative. And so there's some risk -- not high probability -- but there's some risk that we could be out on a tail in the distribution where the climate warming -- climate -- so-called climate sensitivity is even greater than the consensus numbers that go into Fatih's calculations.

We have time for a couple more questions. One here and then the last one over there.

QUESTIONER: Thank you very much for a great presentation. Let me --

VICTOR: Say who you are.

QUESTIONER: Maurice Tempelsman.

Let me come back a little bit to what I think is a very important element in the new structure you're talking about, which really the disparity between the sins of the past and the needs of the future and your very sympathetic view towards the developing world, which I understand and I concur too. But there's a little bit of a flaw in that reasoning when you really do it, because that item was not on the agenda 100 years ago or 50 years ago. Technology has moved on.

Let me give you the flipside of what I mean. For instance, I work a lot in Africa. Telephony -- I mean, you have a whole continent which was changed because of portable telephony. Do they have, because they skipped one generation of wired telephony, should they pay for the wires in this -- there's a bit of an intellectual problem I've got with that. Could you get into that?

BIROL: You are right, but I should also tell you that the -- the CO2 emissions in the last 100 years in the atmosphere was during the Industrial Revolution of the OECD countries -- of the rich countries. And through using energy, they became rich. We became rich. And therefore, I think we should have understanding for their demand. This doesn't mean that the whole -- the responsibility is on the shoulders of the OECD countries, but I think they should be leading. They should have a leadership responsibility here. I do not say that OECD countries should pay for everything, but they have a leadership responsibility for what they have done in the last 100 years and help the China and India not to make perhaps the, if I may say so, the mistakes that we have done in the last 100 years.

So I would think that those countries have the point to look at the cumulative emissions. But as I tried to show, if they do not change their policies -- even in terms of cumulative emissions -- China will be reaching the OECD levels. So therefore, what should be, I believe, is the OECD countries should have the leadership to help China and India to have access to better technologies.

VICTOR: Last question -- exceptionally brief, please.

QUESTIONER: Elizabeth Bramwell, Bramwell Capital.

I wonder in your assumptions what your assumptions are on the value of the U.S. dollar and energy being -- continued to be valued in dollars.

BIROL: Okay. So, first of all, we have not made an assumption about the U.S. dollar versus other currencies and how they are going to change. We took the last two, three years of average and we kept it constant.

For the second question: Before working for the IEA, I worked six years for the OPEC secretariat. I started to work there some 20 years ago. And the first assignment they gave to me -- it was an Iranian rupee as I remember -- what would happen if the oil price was valued with Deutsche Mark? This was the request. And it didn't -- I make my job, I provided my report to my supervisor. I thought that, and I still believe that, if there's international trade, a global trade, and all of the goods and investments are made in one currency, it will be very difficult to change that currency and to go to other currencies. And I believe that the oil price will be valued in dollars for several years to come.

VICTOR: Well, it's an important reminder that a big chunk of the rise in the oil price we're seeing is a currency effect.

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